Aubrey McIntosh has taken up mining in his spare time, and he's finding it hard and hot—even if it's prospecting for a virtual currency and a computer is doing all of the work.

Mr. McIntosh, a semiretired chemistry professor in Morris, Minn., is among the growing ranks of enthusiasts who use powerful computers to "mine," in insider parlance, "bitcoins," an unregulated digital currency.

Mr. McIntosh keeps his specialized computer, which he said cost about $1,500 and is custom-built to find bitcoins, near the chimney flue in his basement to try to get rid of all the heat it generates.

"It sounds like an aircraft carrier," he said. Since turning the computer on his electricity bill has about doubled.

Bitcoins aren't physical objects that you can put in your pocket. Bitcoin is a virtual currency—launched in 2009 by a person or group going by the name "Satoshi Nakamoto"—that isn't backed by a government. Units of the currency exist only online but are sometimes traded for real goods and services. Users send the bitcoins to each other using digital addresses.

Few merchants take bitcoins as payment, but the number is growing. For example, WordPress.com, a blogging service, and dating website OkCupid both accept bitcoins. There are also currency exchanges that let users trade bitcoins for U.S. dollars and other countries' currencies.

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Bitcoin is attracting attention as a wildly volatile, all-digital currency. How does it work? How are criminals taking advantage of it? How risky an investment is it? In this Bitcoin explainer, WSJ's Jason Bellini has "The Short Answer."

Bitcoins are mined by a decentralized network of computers that guess solutions to a mathematical puzzle. As part of that process, miners keep track of and verify all transactions on the bitcoin network, so bitcoins are a kind of compensation for maintaining the ledger of transactions. The faster a person's computer system can find solutions relative to the rest of the network, the better chance he or she has of being awarded bitcoins.

That can require powerful computer equipment to keep up with competitors. Some people spend tens of thousands of dollars on custom-built "mining rigs" that they say can triple their homes' electricity bills and raise room temperatures by 20 degrees or more. For some miners, the payoff has been only virtual thus far. Many either hang on to the bitcoins or trade them for traditional currencies on online exchanges. On Thursday, one bitcoin fetched about $135 on Tokyo-based Mt. Gox, one of the largest bitcoin currency exchanges.

Cameron and Tyler Winklevoss, the twins known for battling Mark Zuckerberg over ownership of Facebook Inc., recently proposed the creation of an exchange-traded fund to track bitcoin, though regulators haven't yet said if they will approve it.

While Mr. McIntosh, the chemistry professor, says he has made more money than he has spent on mining, he tries not to talk to his extended family about it. "I think the whole concept of bitcoin would alarm them," he said.

ENLARGE

Bitcoin mining machine

The system is designed so that only about 21 million bitcoins will ever be mined. So far, about 11.7 million bitcoins have been mined, leaving 9.3 million up for grabs.

That has led to an arms race. The first miners in 2009 used standard home computers. By 2011, they discovered that computer graphics cards, commonly used to render graphics in videogames, could perform the calculations faster. Now, startup hardware companies sell mining rigs designed with no other purpose than to find bitcoins.

For David Perry, a 30-year-old software developer in Las Vegas, things got so out of hand that he had to buy a second air-conditioning unit just to keep his 700-square-foot apartment habitable. During the summer of 2012, he said, his monthly electric bill hit $700, more than five times the normal amount. His mining rig included 14 computer graphics cards, which then were among the most effective kinds of equipment to find the currency.

Although he said he has "more than 10 times recouped" in bitcoins his $2,500 investment in hardware even after factoring in electricity costs, his wife is still skeptical of the operation. "It got so hot that we realized we were living in our own personal hell," said Mr. Perry, who now blogs about bitcoin-mining equipment.

Software developer Daniel Mross, who is 35 years old and lives in Pittsburgh, recently shut down his bitcoin rig after two years of mining. At its peak, his setup included four computers with a dozen computer graphics cards, among other equipment.

"It threw off a hell of a lot of heat, much to my wife's dismay," he said. But, he added, "It was nice in winter time."

Mr. Mross said his monthly electric bill once almost hit $700, up from the typical $250. Though he shut down his rig, Mr. Mross is making a documentary, called "The Rise and Rise of Bitcoin," in which he tells his mining story.

A major factor that did in Mr. Mross was the advent of pricey computer systems designed especially for bitcoin mining.

One startup, Butterfly Labs in Overland Park, Kan., sells mining rigs that cost as much as $22,484. Co-founder Jeff Ownby said his company consistently sells out each time it releases a batch of new mining rigs.

The bigger systems can be a strain on residential power capabilities. James Gibson, a former Web applications developer, started a mining operation out of his apartment in Orlando, Fla., in 2011 but quickly outgrew it.

"We couldn't have the TV on and keep all the miners on at the same time," he said. "The circuit would pop." Now, he rents space in four data centers in Kansas, in part to make sure his 27 mining rigs never lose power or Internet connectivity.

Mr. McIntosh has figured out a way to limit losses. Before receiving his new $1,500 bitcoin mining machine this summer, he sold investors 69 "shares" of the rig, worth 1% of its future findings.

The deal allowed him to make back his investment even before turning the machine on, he said. The shares sold for between 0.8 and 1.4 bitcoins each.

Michael B. Taylor, a computer science professor at the University of California, San Diego who has also written a paper on bitcoin, in March bought four of the shares for what he said was about the equivalent of $315 at the time. He said he receives bitcoin "dividends" every week. But the payout is dropping as other bitcoin miners throw evermore firepower into their operations. Given the arms race for mining equipment, the rig, said Mr. Taylor, is "guaranteed to be obsolete in a year."

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